What do I need to know about affiliate marketing?

If you are like me, you like to understand how systems and businesses work. I had the opportunity to learn a bit more about the nature of affiliates last week at the Affiliate Convention here in Denver, Colorado. I learned that affiliate marketing is embedded in much more deeply in the web than I had previously realized. I thought I’d share a bit about the industry since as technologists it’s important for us to understand what’s going on “under the hood” and web technologies are, well, everywhere.

An affiliate markets a product or service to potential consumers in a trackable way. Most often “trackable” means via a web link with an “affiliate code” that identifies you the consumer as clicking on a link from an affiliate. I’m an affiliate because I recommend books for business analysts and link to them on Amazon (if you purchase them, I get a small percentage of the revenue, so far not enough to cover web hosting costs ). But as an industry, the affiliates are much larger. While they include those promoting the infamous teeth-whitening products and miracle diet pills, the industry also includes brilliant marketers who help some of the world’s best products reach their full sales potential.

Affiliate marketers are paid for performance

What makes affiliates unique is that they are paid solely on performance. Some call the industry “performance marketing” because affiliates only get paid if and only if the make a conversion. In some cases that’s a qualified lead (i.e. when you complete a sign-up form to learn more about insurance or a mortgage). In other cases it’s an actual purchase.The affiliate’s profit is the difference between the payout from the company providing the product or service and the amount the affiliate spends on marketing. Some affiliates deal with programs on a microscale, paying 5-10 cents/click and converting at a few dollars or more. Others deal in payouts in excess of $100 or even $1000 and invest much more money upfront in marketing the product or service. The affiliate bears a lot of risk in that they could invest money marketing and never see a conversion and therefore any return on their investment.

Affiliate markets invest in marketing, content, and tools

Affiliates do many things to market their products in unique ways. They are deep in the knowledge of tools like Google Adwords and other search marketing platforms. Some affiliates build sites and profiles within specific niches (think home gardening tools or pet clothes) and market (or recommend) products specific to that niche. Others are on the hunt for the best offers (in terms of their payout, not necessarily for the consumer) and build specific marketing plans to achieve the best return on their investment.

I was surprised to learn that affiliate marketing is a big business, some people investing in excess of thousands of dollars to uncover their first successful return. Some “making it big” by accumulating hundreds of thousands of dollars in successful programs. Others, such as offers.com creating full-scale business with multiple employees in editorial, marketing, web design, etc.

There are also a host of systems and products that support affiliates. I talked to one vendor who hosts an email aggregation product. Essentially his team subscribes to hundreds of thousands of email offers and provides data on the marketing materials, promotional offers, and results other marketers are getting from their email programs. Many affiliates also use tools to manage complex programs of keywords, landing page ids, and tracking ids.

Affiliate networks support affiliate managers and affiliate marketers

Another key concept is an affiliate network. Affiliate networks aggregate large amounts of products and services for sale. Affiliates join networks to gain access to marketing these products and services.  Companies join networks to unload the hassle of tracking conversions and paying affiliates. The network often offers tools and services, such as tracking and reporting, and manages the financial transaction of the site. So, affiliate networks are, in a sense, the go betweens of the go betweens and they take their cut of any conversions. Some examples are Pepperjam and UniqueLeads (the sponsor of my free entrance to the convention).

Companies employ affiliate managers

Another role in the mix is an affiliate manager. This is the person inside the company who manages an affiliate program as part of it’s marketing strategy. (As an interesting side note, some would call this a sales strategy. Because affiliates do not make money unless there is a sale, the payout can be considered a cost of sale.) The affiliate manager works with all the affiliates, at times helping them define their marketing strategies, providing ad copy and even, on occasion, negotiating the terms of their marketing. It’s possible, for example, for an affiliate to negotiate exclusivity to a certain set of keywords, promotional tactics, marketing spaces. etc.

What does this mean to me?

Well, affiliate marketing is everywhere. Any site, any link, and potentially any ad is an affiliate program at work. An affiliate may be leveraging a cost-effective advertising tool, even those available on some of the biggest news websites, to advertise a product and make a conversion at a significant margin. Your favorite website with the most reputable content is probably supporting itself by leveraging affiliate programs. It’s a behind-the-scenes industry that has definitely permeated the web and created new opportunities for solo individuals and big business alike.

If you run a website and are not conscious of your presence as an affiliate, it’s worth investigating further how affiliates may be leveraging you and how you might be able to jump into the affiliate waters. If you offer a product or a service and have not explored how affiliate networking can help you promote and market, it’s worth investigating how affiliates could help grow your business. If you consider yourself an informed consumer and want to know where the money you spend is going, take a look at those ads, be aware of those clicks, and learn what you can about where the money is going before you hand over that credit card.

That’s the basic low down.  If you are interested in following an ongoing dialog about a project manager’s experience with affiliate marketing, check out Bud Cookson’s blog. He’s one of us and he is sharing what he is learning about this industry. Good stuff!

P.S. Don’t expect to see teeth whitening ads on Bridging the Gap anytime soon, but do expect me to leverage some of the usability tricks I learned to improve the site and experiment with ways to make this a sustainable platform without compromising the quality of service.

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